Econ110BW11 - Lec 27- GRol

Econ110BW11 - Lec 27- GRol - Macroeconomics B Econ 110B...

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Macroeconomics B Econ 110B, Winter 2011 Prof. Giacomo Rondina Lecture 27
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Material for Final Exam In class lecture notes. lass slides and Lecture notes posted online Class slides and Lecture notes posted online. Chapters 14, 15, 16, 17, 18, 19, 20, 21, 22, 25, 26 an skip 21 ) (can skip 21 1) Problem Sets 1 through 7 Format of Final Exam Same Format as the Midterm BRING A CALCULATOR! 2
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A Closer Look at Monetary Policy, in Normal Times Objective of Monetary Policy I. Ensure the Smooth Function of the Credit System II. Stabilize Output Fluctuations (Short Run) III. Low Inflation 3 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy Is there an optimal rate of inflation? Table 25-1 Inflation Rates in the OECD, 1981-2000 1981 1985 1990 1995 2003 ECD average* 0 5% 6% 2% 0% f lt i h b dl i i i 1980’ OECD average* 10.5% 6.6% 6.2% 5.2% 2.0% Number of countries with inflation below 5%** 21 01 5 2 12 7 Inflation has been declining since 1980’s. Debate:0%or3%inflation? ajor entral anks flation rget Major Central Banks: inflation target is 2 3% 4 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times Design of Monetary Policy Before 1990’s After 1990’s Money Growth Target Inflation Target 5 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times Money Growth Target M1= Currency + Checkable Deposits Inflation and M1 do not move together. 6 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times Money Growth Target M2= M1 + Money Market Dep. + Time Dep. Inflation and M2 show more stable relationship. 7 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times Inflation Targeting ( π *) ¾ A monetary policy independent of the quantity of money M. ( ) ( ) ** e N ii a b YY ππ =+ + t tRt Rl (T l Rl ) 1, 0 ab >> Interest Rate Rules (Taylor Rules) om the LM to the MP curve ¾ From the LM to the MP curve. 8 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times flation Targeting: From the LM to the MP curve Inflation Targeting: From the LM to the MP curve ( ) ( ) ** e N ii a b YY ππ =+ + 1, 0 ab >> 1. Consider * and ("target") e ir i r π = += + 2. Substitute and Rearrange ( ) ( ) 1 e rr a b Y Y = +− + ( ) ( ) ( ) N 9 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times flation Targeting: From the LM to the MP curve Inflation Targeting: From the LM to the MP curve ( ) ( ) ** e N ii a b YY ππ =+ + 1, 0 ab >> 1. Consider * and ("target") e ir i r π = += + 2. Substitute and Rearrange ( ) ( ) 1 e rr a b Y Y = +− + MP Relationship ( ) ( ) ( ) N esign of Monetary Policy: Inflation Target Design of Monetary Policy: Inflation Target 10 Monetary Policy: A Summing Up (Ch. 25)
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A Closer Look at Monetary Policy, in Normal Times flation Targeting: From the LM to the MP curve Inflation Targeting: From the LM to the MP curve ( ) ( ) ** e N ii a b YY ππ =+ + 1, 0 ab >> 1. Consider * and ("target") e ir i r π = += + 2. Substitute and Rearrange ( ) ( ) 1 e rr a b Y Y = +− + MP Relationship ( ) ( ) ( ) N 3. In the Medium Run: Inflation Expectations = Inflation Target and so e r Y Y = = so NN == 11 Monetary Policy: A Summing Up (Ch. 25)
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Econ110BW11 - Lec 27- GRol - Macroeconomics B Econ 110B...

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